In re: Lazy Days' RV Center Inc. et al

Filing 16

MEMORANDUM OPINION re 1 Notice of Appeal. Signed by Judge Richard G. Andrews on 9/24/2012. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

InRe:
LAZY DAYS' RV CENTER INC.,
et al.,
Debtor.

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Bankruptcy Case No. 09-13911 (KG)

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I-4 LAND HOLDING LIMITED
COMPANY,
Appellant,
v.
LAZY DAYS' RV CENTER INC.,
et al.,
Appellees.

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Civ. No. 11-626-RGA

MEMORANDUM OPINION
Stuart M. Brown, Esq., DLA Piper LLP (US), Wilmington, Delaware; Attorney for I-4
Land Holding Limited Company.
Edmon L. Morton, Esq., Young Conaway Stargatt & Taylor, LLP, Wilmington,
Delaware; Attorney for Lazy Days' R.V. Center, Inc., et al.

September~ 2012
Wilmington, Delaware

l
AND~~;~CT

JUDGE:

This is an appeal from an order of the Bankruptcy Court. This Court has jurisdiction
pursuant to 28 U.S.C. § 158(a)(1).
I-4 Land Holding Limited Company- the appellant- owns land in Florida. The
appellees ("Lazy Days" and "LDRV") are "reorganized debtors." Before the reorganization in
bankruptcy, Lazy Days had a lease on the land with I-4. The lease had an option to purchase. As
a result of the bankruptcy, LDRV emerged with the lease. The present dispute concerns whether
LDRV still has the option to purchase.
On November 5, 2009, Lazy Days and LDRV filed voluntary petitions for relief under
chapter 11 ofthe Bankruptcy Code. (D.I. 153, ~ 4). 1 The Bankruptcy Court confirmed the
reorganization plan on December 8, 2009. (D.I. 166, p.1). The Court closed the case March 22,
2010. (D.I. 150). On June 7, 2011, the "reorganized debtors" filed an "Emergency Motion to
Reopen Chapter 11 Case." (D.I. 153). On June 11, I-4 filed an Objection including twelve pages
oflegal argument. (D.I. 161). The Bankruptcy Court held argument on June 13. (D.I. 164, 167).
On June 16, the Bankruptcy Court issued a seven-page Memorandum Order, granting the relief
requested by the reorganized debtors. (D.I. 166). The Bankruptcy Court decreed that: (1) The
lease was assumed by Lazy Days and assigned to LDRV pursuant to 11 U.S.C. § 365(a); (2)
Section 13.1 of the lease is an anti-assignment provision and unenforceable pursuant to 11 U.S.C.

§ 365(f)(3); (3) I-4's actions in refusing the purchase option violate the confirmation order and
plan; and (4) I-4 shall comply with the Court's orders and permit the purchase option. (D.I. 166,
pp. 6-7). I-4 noticed an appeal on June 23. (D.I. 169).
1

Unless otherwise indicated, references are to the record in the Bankruptcy Court.
2

The matter has been extensively briefed in this Court. I-4 argues that the Bankruptcy
Court committed seven reversible errors oflaw, all of which should be reviewed de novo. The
reorganized debtors argue that, while three of the supposed errors are subject to de novo review,
four of them involve the exercise of discretion, and are therefore subject to review for abuse of
discretion.
The relevant facts are that Lazy Days had a lease on certain land. The lease prohibited
Lazy Days from assigning its lease "without the prior written consent of Landlord, which consent
shall not be unreasonably withheld or delayed." Lease, § 13 .1. There was an exception that
allowed Lazy Days, under some circumstances, to assign the lease to related parties. Lease, §
13 .2. The purchase option stated: "Provided that this Lease has not been assigned ... other than
pursuant to Section 13.2 and provided that [Lazy Days] is not then in default under this Lease,
[Lazy Days] shall have [a purchase option, the details of which were specified]." Lease,§ 33.3.
There was pre-petition litigation in Florida state court between Lazy Days and I-4, which
was resolved in the bankruptcy proceeding by a Settlement Agreement. It stated that: "Except as
otherwise provided in this Agreement, there is no intent to, nor is the Lease modified in any
respect and the Lease and all terms and conditions thereof remain in full force and effect." (D.I.
153, Exh. B, ~ 14). It further provided that Lazy Days intended to assume the lease and assign it
to LDRV. (!d. at 2-3,~ D & at 6,

~5)

I-4 consented to the assignment without notice. (!d. at 7, ~

5). The Bankruptcy Court's confirmation order required the reorganized debtors to assume the
lease and the Settlement Agreement. (D.I. 93, at 40, ~25).
The reorganized debtors attempted to exercise the purchase option on May 12, 2011.
(D.I. 153, ~~ 12-13). 1-4 refused. (!d.,

~14).

Thereafter the reorganized debtors and 1-4 initiated

3

two lawsuits, one on June 1, 2011, and one on June 7, 2011, in Florida state court to vindicate
their respective rights. (No. 11-626, D.I. 9, p. 11; D.l. 12, pp. 9-10). At least one ofthose two
lawsuits is pending, with mediation scheduled for September 24, 2012, and trial scheduled for
November 5, 2012. (No. 11-626, D.I. 15).
The first issue is that ofthe Bankruptcy Court's jurisdiction. I-4 objected to it. (D.I. 161,
~

33). Therefore, I-4 preserved the issue. The Bankruptcy Court cited as its jurisdictional

authority 11 U.S.C. § 350(b), which provides that, "A case may be reopened in the court in which
such case was closed to administer assets, to accord relief to the debtor, or for other cause." The
Bankruptcy Court decision to reopen involves its exercise of discretion. Thus, review of that
exercise is for abuse of discretion. See Donaldson v. Bernstein, 104 F .3d 54 7, 551 (3d Cir.
1997). The Bankruptcy Court's Memorandum Order stated two reasons why it was reopening
the case. The first was that it was "appropriate for the Court to interpret its own Confirmation
Order."2 The second was that I-4 had "attacked a central provision of the Plan and Confirmation
Order," and that the Court had retained jurisdiction to hear disputes regarding interpretation or
enforcement of the Confirmation Order. (D.I. 166, pp. 3-4).

2

I agree in the abstract that it is appropriate for the Bankruptcy Court to interpret its own
orders. I would also agree with the unstated premise that the Bankruptcy Court had an
institutional advantage (i.e., years of experience and knowledge relating to every conceivable
bankruptcy issue) in doing so. To the extent it might be read to suggest that the Bankruptcy
Court was clarifying its intent at the time it entered the order, I do not think such reasoning
would apply to this case. The confirmation order was written by the litigants (see D.l. 104, pp. 613), not the Bankruptcy Court. This case was a "pre-pack." (D.I. 104, p. 3; D.l. 167, p. 5). To
the extent there was any ambiguity in the order, the ambiguity was introduced by the litigants, not
the Court. The confirmation order was essentially a stipulated order. Interpretation of the
confirmation order thus presented a question oflaw. See In re Insilco Techs., Inc., 480 F.3d 212,
215 n.7 (3d Cir. 2007).
4

I-4 now relies upon In re Martin's Aquarium, 98 F. App'x 911 (3d Cir. 2007). 3 The
Bankruptcy Court had approved a settlement of a contested adversary proceeding, and closed the
case. The parties to the adversary proceeding subsequently engaged in quite a bit of state court
litigation. Nearly two years later, the Court reopened the bankruptcy proceedings, and ruled that
the order approving the settlement was a judgment.

The Third Circuit reversed. While I think it

is fair to interpret the Third Circuit's decision as primarily resting upon other grounds, the Court
noted:
[T]he reason asserted to reopen proceedings here is particularly ill-founded. In
effect, [the creditors] asked the Bankruptcy Court to reopen proceedings ... for the
limited "sole" purpose of giving an opinion regarding the effect of its [order approving
the settlement], which could then be submitted to the state courts. In the normal course,
the effect of the [order] in a subsequent state litigation was a matter for the state court to
determine .... A bankruptcy court-or any federal court-should not provide advisory
opinions for state court litigants.

!d. at 913. As I-4 points out, the Bankruptcy Court's Memorandum Order has the flavor of
advisory opinion: "To be clear and to provide guidance to any other court asked to decide any
issue involving the Lease or the Purchase Option, the Lease is to be read without Section 13.1,
which is invalid." (D.I. 166, pp. 5-6). Thus, while the decree stated, "[I-4 shall comply with the
terms of the Lease (including but not limited to the Purchase Option), the Settlement Agreement,
the Confirmation Order, and the Plan," (id., p.7), it is crystal clear that the reorganized debtors
went to the Bankruptcy Court to get an opinion that could be submitted to the Florida courts, 4 and

3

Regrettably, under the expedited briefing schedule in the Bankruptcy Court, it does not
appear that this case was brought to the Bankruptcy Court's attention. (See D.l. 161).
4

As counsel forthrightly explained to the Bankruptcy Court: "[W]e think that this ruling
is going to instruct the Florida proceedings and well, to be quite frank, more specifically, the
parties of the Florida proceedings." Tr. at p. 25.
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were successful in doing so. Thus, I conclude that the Bankruptcy Court abused its discretion in
reopening these proceedings, and I will vacate its Memorandum Order (D.I. 153) and remand for
further proceedings consistent with this Memorandum Opinion.
A separate order will be entered.

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